Stepping up SOE Restructuring Process

With the theme of “New phase of economic reform: from agenda to action,” the VBF is an opportunity for domestic and foreign business associations to put forth practical and specific recommendations to improve the investment and business climate in Vietnam as well as an opportunity for government agencies to show positive and drastic moves to accompany and resolve difficulties to strengthen the confidence of business community and investors.

 

Deputy Prime Minister Hoang Trung Hai said the Government of Vietnam will continue its synchronous and effective management of economic, financial, fiscal and monetary policies while maintaining macroeconomic stability and curbing inflation in short, middle and long terms, also settling bad debts and existing problems at banks, credit institutions, and uplifting functions and roles of debt trading companies. In public investment, the Government will focus on medium-term investment plans, restrict unfocused and unnecessary investment to ensure public investment efficiency and facilitate social investment.

 

With respect to SOE restructuring, he said the Government has a clear view that, according to the roadmap, Vietnam will have only 600 SOEs by 2015 and 300 SOEs by 2020. The process of SOE equitisation has slowed down on impacts of economic crisis in recent years but this process will be accelerated in the coming time. In 2012, only 34 SOEs were privatised and nearly 100 SOEs went public, well below the target of 175 companies.

 

Mr Simon Andrews, Regional Director of the International Finance Corporation (IFC) in Vietnam, Thailand, Cambodia and Laos, said Vietnam has made significant achievements in macroeconomic stabilisation and economic restructuring. However, much still needs to be done to perform banking system restructuring, address issues related to cross-ownership and enhance accountability and transparency in the State sector. In addition, Vietnam needs to accelerate SOE restructuring. Addressing the forum, Dr Vu Tien Loc, President of the Vietnam Chamber of Commerce and Industry (VCCI), said the Government’s efforts to support businesses in the past time (bailout and tax break) have had certain effect, but many said they have not really benefited. To quickly improve the business environment in Vietnam in the coming time, VCCI has proposed two major solutions: Accelerating SOE reform and building an accelerated programme to upgrade the investment environment.

 

Regarding the first group of solutions, Dr Loc said, there is a need to quicken SOE reform to make it more effective. Accordingly, it is essential to fully apply market principles and disciplines to SOE operation like full accounting of capital costs, full accountability of businesses and business managers and separation of business activities and political - social activities, to ensure no discrimination and fair competition between SOEs and private businesses, to apply modern governance principles and raise transparency in SOE governance, and separate the function of State management and the function of State ownership. Particularly, the Government necessarily accelerates the equitisation of SOEs and forces SOEs to divest from non-core businesses to allocate resources to more urgent and necessary works.

 

Regarding the second group of solutions, the Government should build and implement an acceleration programme to make Vietnam the most open and attractive investment environment in the ASEAN region in the next five years.

 

To accomplish this objective, the Government needs to continue with stronger administrative reform in the following areas: market access, export-import, tax, land, investment, construction, environmental resources and labour. Besides, it is necessary to make regular review and drastic cut in expanses for doing administrative procedures, enhance dialogues between the Government and investors, apply electronic administrative procedures, intensify human resources training, and enhance accountability and integrity of State officials. The implementation of measures stated in the Scheme 30 needs to restore the accelerator of the start-up phase.

 

To have an objective gauge of practical results of the Government’s administrative reform measures, VCCI has also proposed empowering trade offices and business associations to conduct periodic independent surveys and studies to assess the quality of administrative procedure implementation in the above fields and sectors and put forth recommendations to the Government. VCCI’s study and release of provincial competitiveness index (PCI) is a successful example of this approach.

Dr Loc asserted that the business community is looking forward to more groundbreaking programmes and more specific and practical actions. Institutional restructuring and renovation efforts which are being strongly started together with positive integration process powered by active negotiation and signing of Trans-Pacific Strategic Economic Partnership Agreement (TPP), Regional Comprehensive Economic Partnership (RCEP), Vietnam – EU Free Trade Agreement, and other bilateral and multilateral free trade agreements will create the new "rails" for Vietnam's economic locomotive to move forward.

 

It is time for Vietnam to move forward on necessary reforms to create a more competitive environment where decisions are made faster, procedures are less complicated, rules are fairly enforced, and companies compete on their merits - including for access to capital, land and opportunities.

 

AmCham strongly believes that the Trans-Pacific Strategic Economic Partnership Agreement (TPP) offers a new opportunity for Vietnam to meet socio-economic development goals and renew the country’s growth model. TPP may also help with the difficult task of reforming Vietnam’s state-owned enterprises.

The EU and Vietnam are in the process of negotiating a Free Trade Agreement (FTA), expected to be concluded at the end of 2014. This agreement is likely to further extend trade relations and investment opportunities for the benefit of both the EU and Vietnam. Under the FTA, it is estimated that Vietnam’s GDP could rise by over 15 percent, real wages of skilled workers could increase by around 12 percent, wages of unskilled by 13 percent and the value of exports could increase by almost 35 percent. However, the resulting potential benefits could be undermined, unless Vietnam is fully committed to international trade rules and ensures their effective implementation.

 

Japanese enterprises are not satisfied with the Investment Climate in Vietnam because of lack of talented management persons, unstable power supply, lack of infrastructure development, inflexible social system (including tax system and labour law system), limitation of materials supply sources (the local procurement ratio is low), lack of supporting industries and social system which lacks transparency etc. Although there are a large number of young and competent workers in Vietnam, it will lead to the risk of investment shifting to other countries, if the productivity doesn’t rise while wages keep increasing.

 

The involvement of the government is essential in the implementation of PPP (Public Private Partnership). It’s necessary for the private enterprises to have the financial support from the government to provide their services with reasonable price in the public sector. To execute the infrastructure projects, the government should have the responsibility for land acquisition as well as relocation expenses. And also in order to make PPP become feasible, the Viability Gap Funding (VGF: Subsidy System aiming at covering the financial gap to make the project become feasible for the private enterprise who undertake it), the mechanism for the government to support the offtaker’s payment obligation and the governmental support related to the land acquisition and currency exchange and so on are required.

 

We know that the unification work of the PM’s Decision 71 and Decree 108 is being carried out and the establishment of the legal framework to protect the interest of the lenders (the rights of the PPP project owner can be transferred to the lenders, step-in rights of the lenders be permitted, mortgage of assets to lenders should be also permitted) is strongly required.

 

Procedures and mechanism for ensuring that SOEs are accountable to stakeholders appear to be lacking, or at least unenforced. This can lead to inefficient operation and misuse of State capital.

 

In order to operate efficiently and compete effectively, SOEs should follow market principles and compete fairly with other private sector companies. To create and maintain this fair competition, the Government must separate its role as a policy maker to its role as the owner of businesses. As a policy maker, the government has to regulate the market without discrimination between private sector companies and SOEs. As a "business owner", it must ensure that SOE operate efficiently and sustainably, which requires strong and transparent governance.

 

To address the situation, the government has set up the State Capital Investment Corporation (SCIC) to be an investment company owned by the government so as to manage the State investment in enterprises on behalf of the State. However, it seems that SCIC may need more time and resources to develop itself to fulfil this role.

 

Many of our member companies are still experiencing great problems due to increased transport and logistics cost as a result of port congestion and lack of handling capacity in major Vietnamese ports. In order for Vietnam to remain competitive compared with its neighbouring countries it is important to improve the cargo handling capacity and cost.

 

Present ports need to be improved and new ports need to be built, this applies both for container terminals and bulk-steel cargoes, however the current cap on foreign shareholding is often limited to 49 percent only. It is important that the users, being mostly foreign shipping companies, do participate in such large investments in order to make them successful. We recommend that, in order to accelerate investment in this important sector, the policy is eased to allow at least 70 percent or 100 percent foreign shareholding in transport and port investment projects.

 

We would also recommend that the relocation of main ports out of Ho Chi Minh City centre is accelerated to transfer the cargo flow to more transport accessible and cost efficient deep sea ports in Ba Ria - Vung Tau province.